A key committee in the Connecticut General Assembly approved a wide-ranging bill addressing the mortgage crisis Tuesday, including a three-part plan to assist homeowners struggling with home loan payments.

The help would go further than a plan put in place in December by Gov. M. Jodi Rell.

The bill, advanced by the legislature's banks committee, also includes some provisions for reforming the mortgage lending industry in Connecticut, although it does not include measures that housing advocates had pushed.

Members of the committee said the proposed legislation was still subject to further negotiations with bankers, housing advocates, the governor and the state Department of Banking. "This is a work in progress," said Sen. Bob Duff, D-Norwalk, co-chairman of the banks committee.

Duff and his committee co-chairman, Rep. Ryan Barry, D-Manchester, co-authored the bill. It was approved in a 10-7 vote, with the committee's Republicans and one Democrat, Deputy House Speaker Marie L. Kirkley-Bey of Hartford, voting against it.

Kirkley-Bey who didn't attend the meeting but voted later, could not be reached for comment late Tuesday.

Republicans were critical of the far-reaching scope of the assistance plan and concerned that the bill didn't include more proposals offered in a competing bill submitted by Rell and state Banking Commissioner Howard Pitkin.

The assistance plan in the bill would replace Rell's $50 million CT Families program, which was expanded last week beyond first-time home buyers after criticism from Duff and Barry that the program was too narrow.

Even with Rell's latest changes, the plan contained in the bill goes further. It targets not only borrowers caught up in the subprime mortgage crisis, but anyone who is falling behind on home loans because of life circumstances, such as a job loss or health problems.

State Rep. John A. Harkins, R-Stratford, questioned whether the state should be getting involved in what he considered a "bailout."

Duff countered that the assistance plan shouldn't be considered a bailout because it would keep the economy stable and keep people in their homes.

"This is not a handout but a hand up," Duff said. "These are loans to homeowners that would get paid back."

Many other states, as well as Congress, are considering proposals to ease the burden on borrowers behind in their mortgage payments.

In Connecticut, the proposal would help even those with less-than-perfect credit. There would be three separate loan programs for borrowers, with $140 million in financing over the next four years. The proposal also calls for new education programs and sets up a "mortgage crisis job training team" to provide financial literacy, help borrowers repair their credit and help them find jobs.

The program would be run by a new 10-member committee within the state banking department.

On the reform side, the bill provides for more explicit disclosure of so-called "yield spread premium" payments, paid by lenders to brokers who place borrowers in higher-rate loans than the borrowers could qualify for. But the bill doesn't seek to restrict such payments, which were defended by some industry executives.

The bill approved Tuesday doesn't include a provision that would transfer liability for fraud from the original holder of a loan to any subsequent buyer of the loan. Duff and Barry's original bill allowed for a transfer of liability — which could help borrowers who were coerced into signing mortgages they couldn't afford. In their original version, the liability would have been capped at the amount of the loan, plus attorney fees.

Housing advocates have pushed for such a transfer of liability so fraud victims can better defend against foreclosure in court. Bankers argue that it would make the secondary market reluctant to purchase loans and therefore restrict credit. Some studies, however, have found that transferable liability limits do not hurt the flow of mortgage financing.

Barry said those reform issues could surface again this session, but might be better dealt with in the future, outside of the current bill.

"We've got to make sure this bill is tightly buttoned up coming out of the committee, so it doesn't get stalled by a big issue that needs to be researched and negotiated," Barry said.

Reprinted with permission of the Hartford Courant.
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